All posts tagged Investor Psychology

You may be looking back and forth between stock-market futures and the headlines out of Europe and wondering why there’s a seeming disconnect between the two: Stocks are soaring, even as Europe plainly can’t even agree to disagree on how to deal with its world-eating problems.

Market legend Art Cashin of UBS has a theory, though, that could explain things: Investors might simply be excited that the Big Decision moment keeps getting kicked further and further down the road.

Rather than having to sweat through a “Lehman Weekend” this weekend, we can enjoy the nice fall weather, go on a hay ride, whatever.

Why should anybody be glad the Big Decision has been delayed indefinitely? Europe’s clearly in trouble, and lots of talking heads are griping that immediate action needs to be taken.

But if we delay the Big Decision, we put off the moment of inevitable disappointment and increase the chances of some sort of deus ex machina that will change everything in the interim.

Mr. Cashin, in his market comments this morning, uses a fable of a Greek philosopher’s disciple to explain the psychology here:

Looking at financial markets these days — the euro crisis, the U.S. debt debates, the volatility in exchange rates worldwide — it’s easy to wonder if investors have been too confident in the pronouncements of so-called market experts.

Princeton psychology professor and Nobel economist Daniel Kahneman looks at this issue in this week’s New York Times Magazine, arguing that humans are just too willing to believe people who look like they know what they’re talking about.

The question, as he puts it:

“How do we distinguish the justified confidence of experts from the sincere overconfidence of professionals who do not know they are out of their depth?”

The answer: Be aware that experts can be wrong, and that you yourself can be wrong.

My MarketWatch colleague David Weidner, not satisfied with having irritated half of humanity by declaring recently that women make better investors, today alienates the other half by saying that you shouldn’t trade like a girl, either.

In an earlier column, David wrote about a Barclays Wealth/Ledbury Research study that found women were better investors because they were less prone to make stupid, panicky moves. There’s a book out there called “Warren Buffett Invests Like a Girl” that explains the Oracle of Omaha’s success in similar terms.

It all made perfect sense. But now David, just like a typical male, has gone and written a new column saying that investors, even those with lady parts, need to embrace some maleness, in the form of risk-taking:

Women are mostly on the sidelines. They’re waiting until the market comes back (it always does), and that’s fine for them.

But there’s a reason why there are so few famous women investors. For the most part, women are satisfied with reasonable returns. Men want more; they aim big.

About MarketBeat

MarketBeat looks under the hood of Wall Street each day, finding market-moving news, analyzing trends and highlighting noteworthy commentary from the best blogs and research. MarketBeat is updated frequently throughout the day, helping investors stay on top of what’s happening in the markets. Lead writers Paul Vigna and Steven Russolillo spearhead the MarketBeat team, with contributions from other Journal reporters and editors. Have a comment? Write to paul.vigna@wsj.com or steven.russolillo@wsj.com.